What Are Promissory Notes?
Basic information related to Promissory Notes
As we know that a promissory note is a legal document that has been written and signed by both parties. It is a contract that has been signed to establish the rights and duties of both the borrower and the lender too.
Both the parties promises on the agreement and they sign it on agreeing on it. The lender asks for the amount on the specific date and the borrower agree to pay it on the demand and on the same date.
The amount due may include a particular amount of interest on the note’s unpaid principal amount. A promissory note is of two types, it can either be secured or unsecured.
What are Unsecured Promissory Note and Secured Promissory Note
As per the name is concerned, an unsecured promissory note is not secured or do not have a back up of collateral. The lender doesn’t ask for the security to the borrower in the unsecured promissory note. However, your promissory can always be modified.
He doesn’t ask for the interest in the assets and he has fewer default risks in his mind. But, the true risk is still there that the borrower might not pay back the loan.
The lender does have other ways to get his money back and it can be through the debt collection process. The debt collection enters the debt settlement agreement and it is done through court.
The other type of promissory note is when you have to agree on giving your assets as a security to the lender that you wouldn’t do any default. It is a security agreement between the lender and the borrower.
If the borrower fails to pay back the loan, the lender has the right to get the property and sell it. The property will be lender’s if the borrower fails to pay back.
The most basic difference between the secured and unsecured loans is that the secured loans have an assurance the borrower will pay back the loan and there is less risk of default.
Whereas in an unsecured loan, there is a major risk of default. And, the lender has to visit court for legal action in an unsecured loan.